Anchor Retirement

Will Rogers once said “I’m more concerned with the return of my money than the return on my money.”

Many people feel similarly about the equity on their home, they feel that because their money is their home that that is the safest place for it.

Real Estate booms (like the one that is concluding now) are all a result of supply and demand. Yes, it is an over simplification, but it is the reality. Real Estate professionals use the terms “buyer’s market” (too much supply, not enough demand) and “seller’s market” (too much demand, not enough supply) to describe the current situation

The problems arise when the equity you have disappears. In 1985, I purchased my home, only to see values drop 30%, it would take 15 years to recoup that lost equity. Every situation is different, but I wasn’t the only one, thousands were in the same boat.

Missed Fortune shows why having money tied up in your house is worse than having it buried in your backyard.

Missed Conception #3: There is  a return on equity.

Let me use Doug R. Andrew’s illustration because after all, he did write the book. Assume you have a house valued at $100,000 that is free and clear of any mortgage. At the end of one year your house appreciates 5% and grow in value to $105,000. Got It? Good!

Assume now that you separated the equity from the house and invested it earning 10%. At the end of the year your investment is now $110,000 PLUS your house has still appreciated another 5% for a $105,000 value. You have just tripled your return. Of course, there is now a mortgage to contend to and I’ll leave it up to you to peruse those books.